Arsenal want to sign James Milner from Manchester City after the England midfielder informed the newly crowned Premier League champions he would like a transfer. Liverpool are also interested but Arsenal, the FA Cup winners, are leading the way as it stands.

Milner's decision creates a serious issue for City at a time when they are already struggling to meet the stipulations set by the Premier League and Uefa about meeting the homegrown player rule. If Milner left, Joe Hart could be the only Englishman left at the club with any chance of playing regularly next season.

City would be reluctant to lose Milner even without those regulations and hope the offer of a lucrative four-year contract will persuade him to change his mind. Yet the player informed them last month of his decision and is strongly tempted by the interest from Arsenal and Liverpool. If City refuse to entertain the idea, his preference is currently to stay until he is eligible for a free transfer next summer rather than committing to a new deal.

Milner's belief is that he would get more games elsewhere and the chance to play in the central midfield position that has continually been denied him at City. His complaint predominantly stems around his lack of matches, having started only 12 times in the league this season, but he has been frustrated as well that when he joined the club from Aston Villa in 2010 he was told it was to play in central midfield. Instead he has been largely used as a wide midfielder by Roberto Mancini and now Manuel Pellegrini.

Arsenal are planning a £10m offer and Arsène Wenger will try to sell the club to Milner by offering to restore him to a central role. Wenger sees the England international as having the experience and mobility to provide competition for Mikel Arteta and Mathieu Flamini.

Brendan Rodgers, the Liverpool manager, is another admirer but the Premier League runners-up have yet to decide whether to turn their interest into a firm bid as they weigh up other targets. Tottenham and, more recently, Everton have also made inquiries behind the scenes as it has become apparent among the league's top clubs that he wants to make himself available.

City will try to nip the speculation in the bud by offering the kind of financial package that might be beyond their rivals but what they cannot promise is regular football and Milner, though enjoying playing for a successful club, has already made it clear that is the crux of the matter. If anything, he is concerned his chances might be further reduced by more signings this summer.

The chances of City allowing him to leave are, however, complicated by the fact that he and Joe Hart were the only two Englishmen to play regularly for Manuel Pellegrini's team last season.

Gaël Clichy also qualifies as a homegrown player – Uefa insists there are eight in every squad – but Joleon Lescott, Gareth Barry, Jack Rodwell, Micah Richards and Scott Sinclair are all expecting to leave the club this summer and that leaves City considerably short of meeting the regulations even without the Milner situation. City's punishment for breaching Uefa's financial fair-play regulations means they will be restricted to a 21-man Champions League squad next season and it is possible that could mean a pro-rata reduction in the number of home-grown players they must include.

Their options, however, are severely restricted. One way of bringing up the number would be to offer new deals to the third-choice goalkeeper, Richard Wright, and the defender, Dedryck Boyata, both out of contract this summer, but City are still in an awkward position.

The champions have already renewed talks with Porto about signing Fernando and intend to replace Richards with Bacary Sagna, the Arsenal full-back. If the price is not prohibitive, they also want a second Porto player, Eliaquim Mangala, after failing to strike a deal with the Portuguese club in the last transfer window. "There have been discussions with Manchester City but the clubs have not agreed [a fee]," Mangala said on Sunday.

Milner is due to take part in England's training camp in Portugal this week and Roy Hodgson has already made it clear that he does not want his players deciding their futures while they are on international duty. However, the England manager also admitted it would be "naive" to think there might not be any crossover.